If you own a business, you need to be aware of the new Corporate Transparency Act (CTA) and Beneficial Ownership Reporting requirement.
Understanding the Corporate Transparency Act (CTA)
The Corporate Transparency Act requires specific businesses to disclose information about individuals who hold significant control over or ownership in the company. This transparency measure is designed to prevent illicit activities, such as money laundering and fraud, by making it clear who truly owns and operates a business.
At the heart of this requirement is the Beneficial Ownership Information (BOI) report, which must be submitted to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of Treasury. For purposes of the CTA, a “beneficial owner” includes anyone who either:
- Holds at least 25% ownership in the company, or
- Exercises significant control over company decisions.
Determining if Your Business Needs to File
Two primary categories of businesses are required to file under the CTA:
- Domestic Reporting Companies: U.S.-based entities like corporations, limited liability companies (LLCs), or other businesses formed through state filings.
- Foreign Reporting Companies: Companies created outside the U.S. but legally registered to conduct business within it.
Based on these requirements, most small businesses are going to be required to file. Certain businesses, however, are exempt from this requirement. Exemptions cover specific types of organizations, including banks, credit unions, large corporations, and insurance companies. In total, there are 23 exemptions, so companies unsure of their status should review this list to determine if they need to file.
Filing Deadlines and Requirements
As with all compliance filing requirements, meeting deadlines is crucial to avoid penalties. Filing requirements differ based on when a business was established:
- Existing Businesses: If your company was created before January 1, 2024, your BOI report must be submitted by January 1, 2025.
- New Businesses: Companies formed in 2024 have a 90-day window from the time they receive public notice of their official formation.
- Future Entities: For businesses formed after January 1, 2025, the BOI report is due within 30 days of registration.
Once filed, businesses are generally not required to update the report annually. However, if there are significant changes in beneficial ownership or if corrections are needed, the company must submit an updated BOI report. There is no requirement to report the termination or dissolution of a company.
Required Information for the BOI Report
The BOI report gathers essential information about beneficial owners to create a transparent ownership profile. Required details include:
- Full legal name
- Date of birth
- Current residential address
- A unique identification number (e.g., passport or driver’s license number)
This information ensures the government has accurate and up-to-date records of individuals who control business entities within the United States.
How to File
Filing the BOI report is straightforward and cost-free. The process can be completed electronically via FinCEN’s secure website (www.fincen.gov/boi).
Consequences of Non-Compliance
Non-compliance with the CTA can result in severe penalties. Failure to file a BOI report, submitting incorrect information, or failing to update the report when required may lead to:
- Civil Penalties: Fines of $500 per day, up to a maximum of $10,000.
- Criminal Penalties: Up to two years of imprisonment for willful violations.
Importantly, these penalties can extend to senior company officers, who may be held personally accountable for non-compliance within their organization.
Resources and Cautionary Notes
To support businesses, FinCEN has developed a Small Entity Compliance Guide, providing step-by-step instructions and answers to frequently asked questions. Additional resources, such as informational videos, webinars, and a direct contact option, are available on FinCEN’s website.
Be cautious of scams—FinCEN does not solicit BOI information through calls or emails. If you receive unexpected communications asking for your company’s details, exercise caution.
For additional information or for assistance with filing, please visit www.fortiviti.com.
